How the CARES Act Helps Small Businesses

The coronavirus relief bill is intended to encourage small businesses to remain engaged in the economy. This means expanded business loan options and deferred payroll taxes for small businesses. Additionally, your business may be covered by Business Interruption Insurance.   

CARES Act Small Business Loans 

Key Takeaways 

The coronavirus relief bill is offering loans to small businesses. Here’s what you need to know: 

• Business impacted by the coronavirus pandemic will be able to borrow up to $10 million. It is anticipated that business owners can begin applying for these loans in early April and will be able to apply until June 30th of 2020. 
• Loans will be available through financial institutions (banks & financial institutions) that participate in the Small Business Administration’s (SBA) lending network. Business owners should reach out to their banks to see if they are within the SBA’s network.   
• Borrowers are able to apply for loan forgiveness for the amount used to meet payroll and other obligations. Payments can be deferred up to a year. 
• Businesses applying for these loans could be eligible for a $10,000 emergency grant. This grant would be issued within three days of the days the application was received but would ultimately be deducted from the forgiven loan amount. 
• If your business chooses to accept any small business loans through the CARES Act, your business would then be ineligible for the payroll tax deferments and vice versa. 

Are the CARES Act’s Business Loans Right for Your Business? 

As small businesses across the country are forced to shut down in efforts to contain the spread of COVID-19, many have faced drops in revenue, employee layoffs, and countless are struggling to stay afloat. It is important to remember that a business must have less than 500 employees to be considered a “small business”. This includes sole proprietors, independent contractors, and anyone otherwise self-employed. Under the CARES Act, your business can acquire loans for as much as 2.5 times payroll or $10 million (whichever is less). Any small business owners wishing to apply for these loans should begin by contacting their bank to see if they qualify. 

Deferred Payroll Taxes

Key Takeaways 

The coronavirus relief bill is giving small businesses more time to cover payroll taxes, here’s what you need to know: 

• Workers and employers each pay 6.2% towards social security and 1.45% towards Medicare. The deferred payroll tax option for businesses would not include the 1.45% that funds Medicare.
• Employers and sole proprietorships have the option of deferring this year’s Social Security payroll taxes until next year and 2022. Businesses that defer their Social Security payroll taxes will have until the end of 2021 to pay the first half of the deferred taxes; the second half must be paid by the end of 2022.
• Deferring payroll taxes may provide your business with more cash on hand but we encourage all businesses to consider their long-term goals - as these taxes must be paid later. Some experts are concerned about the looming recession ahead and believe deferred payroll taxes may pile up and strain businesses. 
• If your business chooses to defer payroll taxes, your business would then be ineligible for the CARES Act’s small business loans and vice versa. 

Is Deferring Payroll Taxes Right For Your Business? 

The last creditor your business wants to owe money to is the IRS. With payroll tax deferral being only one part of a major relief package it is important that your small business is prepared for the financial obstacles that may lie ahead. Figuring out whether deferment is right for your business will require some prognostication and with the amount of uncertainty in the air that may be easier said than done. We advise all businesses considering deferring their payroll taxes to consult with tax experts, bankers, and employment attorneys to best weigh their options. Your business may want to consider loans and paid leave requirements before deferring payments.

Business Interruption Insurance 

Key Takeaways

Some businesses will be covered by Business Interruption Insurance, here’s what you need to know: 

• Business Interruption Insurance is sometimes referred to as “business income insurance” and it serves as the last line of financial defense for businesses during disasters and pandemics. This kind of coverage can protect businesses from experiencing unsurmountable financial losses during events such as fires, natural disasters, and global outbreaks. Most business interruption insurance policies cover things like extra expenses, employee wages, and loan payments. 
• Business interruption insurance also applies if government actions cause operations to cease temporarily, causing financial losses. Nevertheless, it is important to note that not all business interruption insurance policies are the same and your coverage may differ depending on what package your business has. Furthermore, business interruption insurance is not sold as a separate policy and is instead an add-on to your existing insurance policies. 

Does Your Business Have Business Interruption Insurance?  

The COVID-19 disease caused by the novel Coronavirus has led to major disruptions to businesses and governments alike. This pandemic is likely to spark a high volume of business interruption insurance claims but not every business will be covered. Case in point, after the Severe Acute Respiratory Syndrome (“SARS”) outbreak in 2002, many insurance companies wrote their insurance contracts to exclude virus pandemics from this type of coverage. 

To determine whether your business may have interruption insurance covering it for losses associated with the Coronavirus outbreak, a qualified lawyer should review your business’s insurance policies. Businesses pay these kinds of insurance premiums precisely so they can be protected during turbulent times likes these. If your business is covered, you should make a claim without hesitation.

Help Spread the Word!

Adapt & Overcome has quickly become our motto at VB. We built this resource because a lot of friends and family of the firm reached out to us with questions about how the Coronavirus Pandemic and the COVID-19 government bailout would affect small businesses and individual consumers. In fact, we also built a similar resource just for consumers that you can find by clicking here. It's important we all do our part to reduce the impact the virus will ultimately have on our health and our economy. If you have found any of this information helpful we encourage you to share it with your friends and family.